Ecosystem

Overview

The Lightning Network scales blockchains and enables trustless instant
payments by keeping most transactions off-chain and leveraging the
security of the underlying blockchain as an arbitration layer.

This is accomplished primarily through "payment-channels", wherein two
parties commit funds and pay each other by updating the balance
redeemable by either party in the channel. This process is instant and
saves users from having to wait for block confirmations before they can
render goods or services.

Payment channels are trustless, since any attempt to defraud the current
agreed-upon balance in the channel results in the complete forfeiture of
funds by the liable party.

By moving payments off-chain, the cost of opening and closing channels
(in the form of on-chain transaction fees) is ammortized over the volume
of payments in that channel, enabling micropayments and small-value
transactions for which the on-chain transaction fees would otherwise be
too expensive to justify. Furthermore, the Lightning Network scales not
with the transaction throughput of the underlying blockchain, but with
modern data processing and latency limits - payments can be made nearly
as quickly as packets can be sent.

Hash Time-Locked Contracts (HTLCs) allow transactions to be sent between
parties who do not have a direct channels by routing it through multiple
hops, so anyone connected to the Lightning Network is part of a single,
interconnected global financial system.

In short, the Lightning Network enables scalable blockchains through a
high-volume of instant transactions not requiring custodial delegation.